Employer Mandate Enforcement Update: $4 Employer Mandate Enforcement Update: $4.4 Billion in Penalties and Counting Kate Ball, J.D. | August 30, 2018 The IRS has sent more than 30,000 Letter 226J notices to employers containing penalty assessments of $4.4 billion for not complying with the Affordable Care Act.  A significant portion of the 2015 penalty assessments thus far was caused by errors in the compliance process. In this session, an ACA expert will identify the common errors that impact the amount of the penalty assessments levied by the IRS in Letter 226J.  She will explain why these errors are significant, how to avoid making them, and how they can impact the accuracy of the information in your annual ACA filing with the IRS if they are not corrected.  That number is currently estimated to be $228 billion over the next ten years, resulting in a net revenue effect to the IRS of $178 billion over that time period.

Enforcement Via ESRP Letters

Discussion Why Did I Receive an “Employer Shared Responsibility Payment” ESRP Letter? How Do I Respond? Recordkeeping Tips

Why Did I Receive an ESRP Letter? Your organization is an ALE Your organization had 50 or more FT or FTE employees in the year preceding the penalty year ALE status is determined based on the number of employees in the previous calendar year, using a specific counting method Organizations that are part of a controlled group or affiliated service group are aggregated for the purposes of determining ALE status Aggregated ALE group vs. ALE member

Why Did I Receive an ESRP Letter? You failed to offer coverage to substantially all of your FT employees ALEs are subject to the Employer Mandate, which requires: An offer of MEC to 95% of FT employees and their dependent children Failure triggers the 4980H(a) penalty of $2,500* x the number of FT employees, minus the first 30 MEC offered is also “affordable” and provides “minimum value” Failure triggers the 4980H(b) penalty of $3,750* x the number of FT employees that receive a premium tax credit for Marketplace coverage It was minus the first 80 in 2015 *annualized 2019 penalty amounts 2015 penalties were $2,080/$3,120 2016 penalties were $2,160/$3,240 2017 penalties were $2,260/$3,390 2018 penalties were $2,320/$3,480

Why Did I Receive an ESRP Letter? You reported this to the IRS via Form 1094-C M&A

Why Did I Receive an ESRP Letter? You reported this to the IRS via Form 1094-C M&A

Why Did I Receive an ESRP Letter? You reported this to the IRS via Form 1094-C M&A

Why Did I Receive an ESRP Letter? You reported this to the IRS via Form 1094-C M&A

Why Did I Receive an ESRP Letter? One or more of your FT employees was not offered affordable, minimum value coverage, and received a premium tax credit for Marketplace coverage ALEs are subject to the Employer Mandate, which requires: An offer of MEC to 95% of FT employees and their dependent children Failure triggers the 4980H(a) penalty of $2,500* x the number of FT employees, minus the first 30 MEC offered is also “affordable” and provides “minimum value” Failure triggers the 4980H(b) penalty of $3,750* x the number of FT employees that receive a premium tax credit for Marketplace coverage M&A *annualized 2019 penalty amounts 2015 penalties were $2,080/$3,120 2016 penalties were $2,160/$3,240 2017 penalties were $2,260/$3,390 2018 penalties were $2,320/$3,480

Why Did I Receive an ESRP Letter? The letters include a table illustrating how penalties were assessed M&A

Why Did I Receive an ESRP Letter? The letters include a listing reflecting the Form 1095-C, Line 16 codes for the employees who received premium tax credits M&A

How Do I Respond? Form 14764 Using Form 14764, which is included in the letter If you disagree with the proposed ESRP, include a signed statement explaining why you disagree You may include supporting documentation Bill in the works for relief hr 46-16

How Do I Respond? Make any corrections to the Form 1095-C, Line 16 coding on Form 14765 and include it in your response Remember, this is a list of all employees who received PTCs

How Do I Respond? DOs and DON’Ts Do Don’t Respond by the date indicated in the letter, or request a 30-day extension Contact reporting vendor and pull Forms 1094-C and 1095-Cs for the year in question Provide any additional information on the errors in the signed statement Jane Smith was hired on June 15, 2015 as a variable hour employee and entered into a 12-month initial measurement period on July 1, 2015. To reflect this, the PTC Listing has been corrected with code 2D to reflect that Jane was in a limited non-assessment period for the months of June to December 2015. Await IRS response via Letter 227 Don’t Refile Forms 1094-C or 1095-Cs for the year in question IRS has also said don’t refile forms for the next year because they are going to pull them for audit

Recordkeeping How to prepare for an ESRP letter Retain copies of your filed Forms 1094-C and 1095-C If the vendor keeps them, ask for copies Retain information regarding ALE status, offers of coverage, FT status, affordability, minimum value, and any other data that is reported on Forms 1094-C and 1095-C Retain information for at least three years to comply with IRS record retention requirements If you switch reporting vendors, ensure that you retain your data Avoid discrepancies on Forms 1094-C from one year to the next In M&A, don’t forget to collect information as part of due diligence Bill in the works for relief hr 46-16 Review vendor contracts to make sure they are going to retain the records for at least that long

Questions? Kate Ball, J.D. Area Assistant Vice President, Compliance Counsel kate_ball@ajg.com

The intent of this presentation is to provide you with general information regarding the status of, and/or potential concerns related to, your current employee benefits issue.  It does not necessarily fully address all your specific issues.  It should not be construed as, nor is it intended to provide, legal or tax advice. Questions regarding specific issues should be addressed by your organization’s general counsel, tax advisor, or an attorney who specializes in this practice area.